Figure Technology Solutions (FIGR) risk factors, FY2025 10-K

Business, Financial, and Operational Risks

1. 01We have a history of losses, we may not be able to maintain profitability in the future, and there is no assurance that our revenue and business model will be successful
2. 02If we fail to effectively manage our growth, our business, financial condition, and results of operations could be adversely affected
3. 03Our revenue growth rate and financial performance in prior years may not be indicative of future performance
4. 04Our limited operating history makes it difficult to evaluate our current business and prospects and may increase the risk of your investment
5. 05Substantially all of our revenue is derived from our HELOC product, and we are thus particularly susceptible to fluctuations in the HELOC market. Our current product offerings may also not be sufficiently broad to attract and retain partners
6. 06Our success and ability to develop our lending business depend on retaining and expanding our reach through both our Figure-branded and Partner-branded strategies. If we or our partners fail to add new customers, our business, financial condition, and results of operations could be adversely affected
7. 07Our business depends, in part, on the success of our Partner-branded strategies and our network of partners being able to deliver our products, and our ability to grow our business depends on our ability to continue our relationships with our network of partners
8. 08We have significant partner concentration, with a limited number of partners accounting for a substantial portion of our loan originations
9. 09Our growth depends, in part, on the success of our strategic relationships to attract potential customers for our HELOC products on other products, and our ability to grow our business depends on our ability to continue these relationships
10. 10If we do not compete effectively in our target markets, our business, financial condition, and results of operations could be adversely affected
11. 11To remain competitive, we may need to increase our regulatory compliance expenditures or our ability to compete could be adversely affected
12. 12Additionally, due to the broad nature of our products and services, we also compete with, and expect additional competition from, digital and mobile payment companies and other traditional financial services companies
13. 13We expect to introduce and develop new products and services, and if these products or services are not successful or we are unable to manage the related risks, our business, financial condition, and results of operations could be adversely affected
14. 14If we cannot keep pace with rapid digital asset industry changes to provide new and innovative products and services, the use of our products and services, and consequently our net revenue, could decline, which could adversely impact our business, financial condition, and results of operations
15. 15Negative publicity and unfavorable media coverage could adversely affect our business, financial condition, and results of operations
16. 16We rely on our management team and will require additional key personnel to grow our business, and the loss of key management members or key employees, or an inability to hire key personnel, could adversely affect our business, financial condition, and results of operations
17. 17The future development and growth of the digital asset market is subject to a variety of factors that are difficult to predict and evaluate. If the digital asset market does not grow as we expect, our business, financial condition, and results of operations could be adversely affected
18. 18We may need additional capital, and we cannot be certain that additional financing will be available on favorable terms, or at all
19. 19To the extent that we seek to grow through future acquisitions or other strategic investments or alliances, we may not be able to do so effectively
20. 20Increases in borrower default rates on loans could make us and our loans less attractive to loan purchasers, lenders under warehouse credit facilities and investors in securitizations, which may adversely affect our access to financing and our business, financial condition, and results of operations
21. 21Borrowers may prepay a loan at any time without penalty, which could reduce our servicing fees and deter our partners and loan purchasers from investing in our loans
22. 22The management and security of digital assets collateral presents risk of potential loss of the collateral and attendant legal and reputational consequences
23. 23Reliance on technology for digital assets-secured loans exposes us to the financial, legal, and reputational risks associated with potential system failures, data inaccuracies, and cybersecurity threats
24. 24If we do not make accurate credit and pricing decisions or effectively forecast our loss rates, our business, financial condition, and results of operations could be adversely affected
25. 25We rely upon the accuracy and completeness of information about borrowers, and any misrepresented information or fraud could adversely affect our financial condition and reputation
26. 26While we take precautions to prevent borrower identity fraud, our borrowers have been, and may again be, subject to identity fraud, which may adversely affect the performance of the loans facilitated through our platform
27. 27Our underwriting may not accurately predict the likelihood of default for all loans, which could result in substantial losses that adversely affect our business, financial condition, and results of operations
28. 28The unique features of our LOS, including reliance on online notaries, automated valuation models (“AVMs”), and lien data may expose us to a greater risk of loss, which could harm our partners and investor relationships and our business, financial condition, and results of operations
29. 29We primarily utilize a gain-on-sale origination model and, consequently, our business is affected by the cost and availability of funding in the capital markets
30. 30In connection with our loan funding programs, we make representations and warranties concerning the loans sold, and if such representations and warranties are not accurate when made, we could be required to repurchase the applicable loans or indemnify the purchaser

Risks Related to Digital Assets

1. 31Due to unfamiliarity and some negative publicity associated with digital asset platforms, confidence or interest in digital asset platforms may decline
2. 32Depositing and withdrawing digital assets into and from Figure Exchange involve risks, which could result in loss of customer assets, customer disputes and other liabilities, and adversely impact our business, financial condition, and results of operations
3. 33Our failure to safeguard and manage our and our customers’ fiat currencies and digital assets could adversely impact our business, financial condition, and results of operations
4. 34A temporary or permanent blockchain “fork” to any supported digital asset could adversely affect our business
5. 35From time to time, we may encounter technical issues in connection with the integration of supported digital assets and changes and upgrades to their underlying networks, which could adversely affect our business
6. 36If miners or validators of any supported digital asset demand high transaction fees, our business, financial condition, and results of operations may be adversely affected
7. 37Our tax information and withholding reporting obligations with respect to digital asset transactions are subject to change
8. 38The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies on certain topics. If financial accounting standards undergo significant changes, our results of operations could fluctuate
9. 39Our strategy and focus on delivering high-quality, compliant, easy-to-use, and secure digital assets-related financial services may not maximize short-term or medium-term financial results
10. 40Banking relationships in the digital asset space have been difficult to obtain and maintain in the recent regulatory climate. Loss of a critical banking or insurance relationship could adversely impact our business, financial condition, and results of operations
11. 41The redemption risk, pricing risk, and regulatory risk associated with stablecoins may adversely affect our business, financial condition, and results of operations
12. 42A significant amount of the trading volume on Figure Exchange is derived from a relatively small number of customers, and the loss of these customers, or a reduction in their trading volume, could have an adverse effect on our business, financial condition, and results of operations

Risks Related to Third Parties

1. 43We sell a significant percentage of our loans to a concentrated number of loan purchasers on the secondary market, and the loss of one or more significant purchasers could adversely affect our business, financial condition, and results of operations
2. 44Our counterparties may terminate our servicing rights pursuant to servicing agreements under which we conduct servicing activities
3. 45Failure of vendors to perform their contractual agreements embedded in our products and services and our failure to effectively oversee vendor operations could adversely affect our business, financial condition, and results of operations

Risks Related to Market and Interest Rates

1. 46Our business, financial condition, and results of operations could be adversely affected by the financial markets, digital asset markets, fiscal, monetary, and regulatory policies, and economic conditions generally
2. 47Our results of operations have and will fluctuate, including due to the highly volatile nature of digital assets
3. 48Our loan financing and selling strategy exposes us to interest rate volatility risk
4. 49Information Technology and Data Risks
5. 50We are dependent on the secure, efficient, and uninterrupted operation of our technology infrastructure, including computer systems, related software applications, data centers, and Provenance Blockchain, as well as those of certain third parties
6. 51The collection, processing, use, storage, sharing, disclosure, and transmission of personal information could give rise to liabilities as a result of federal, state and international laws and regulations, as well as our failure to adhere to the privacy and data security practices that we articulate to our customers
7. 52sensitive personal data or any amount of government-related data. The DSP is new, complex and has yet to be enforced, and as such, there is a risk that our interpretation of its applicability, scope, and requirements is incorrect, incomplete, or misapplied
8. 53investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies
9. 54Any significant system interruption or delays could result in a potential loss of customers and adversely affect us and our ability to provide services, which could adversely affect our business, financial condition, and results of operations
10. 55If our technology suffers from errors or attacks, our business operations could be negatively affected, which may have an adverse effect on our business, financial condition, and results of operations
11. 56Our use of blockchain technology, artificial intelligence, machine learning and other similar tools could adversely affect our products and services, harm our reputation, or cause us to incur liability resulting from harm to individuals or violation of laws and regulations or contracts to which we are a party

Risks Related to Our Intellectual Property

1. 57Our business, financial condition, and results of operations could be adversely affected if we fail to adequately maintain, protect and enforce our intellectual property and proprietary rights or face allegations that our product offerings or conduct infringes on the intellectual property rights of third parties
2. 58One or more of our competitors, or other third parties, may obtain patents or other protections covering technology competitive with or critical to the operation of our products, services, and technology
3. 59Our software contains third-party open source software components, which could subject our proprietary software to general release, restrict our ability to sell our products and subject us to possible litigation, claims or proceedings

Regulatory, Tax and Other Legal Risks

1. 60Our marketing practices involving relationships with third parties may expose us to risks of alleged RESPA violations
2. 61Our acceptance of various payment methods exposes us to evolving rules, regulations, and compliance requirements. Non-compliance may adversely affect our business, financial condition and results of operations
3. 62Our failure to comply with financial services regulatory obligations could damage our reputation, result in regulatory action against us, and adversely affect our business
4. 63If we were deemed to be an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our businesses as contemplated and could have a material adverse effect on our businesses
5. 64Our business model and structure give rise to certain conflicts of interest, which if not appropriately addressed, could result in violations of fiduciary duties to our clients
6. 65Our failure to comply with trade compliance and economic sanctions laws and regulations of the United States and applicable international jurisdictions could materially adversely affect our reputation and results of operations
7. 66If we do not obtain and maintain the appropriate state licenses, we will not be allowed to produce or service loans or provide other services in some states, which could materially and adversely affect our business, financial condition, results of operations, and prospects
8. 67We hold state licenses that result in substantial costs, including licensing fees and compliance costs, and our business, financial condition, and results of operations would be adversely affected if our licenses were impaired as a result of noncompliance with those requirements
9. 68Litigation, regulatory actions, and compliance issues could subject us to significant fines, penalties, judgments, remediation costs, negative publicity, changes to our business model, and requirements resulting in increased expenses
10. 69Our compliance and risk management policies, procedures and techniques may not be sufficient to identify all of the financial, legal, regulatory, and other risks to which we are exposed, and failure to identify and address such risks could adversely affect our business, financial condition, and results of operations
11. 70The regulatory regime governing blockchain technologies is uncertain, and new regulations or policies may alter our business practices with respect to blockchain or could adversely impact our business
12. 71The characterization of HASH as a security may subject us to operational changes, litigation, and significant liability under applicable securities laws, which could have a material adverse effect on our business, financial condition, and results of operations
13. 72are securities in the United States may be subject to registration with the SEC as a “broker,” “dealer,” “exchange,” “transfer agent” or “clearing agency,” as applicable
14. 73Challenges to DART could materially and adversely affect our business, financial condition, and results of operations
15. 74The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members
16. 75We are subject to taxes in the United States under federal, state, and local jurisdictions in which we operate. The governing tax laws and applicable tax rates vary by jurisdiction and are subject to change and interpretation
17. 76Our ability to use our deferred tax assets to offset future taxable income may be subject to certain limitations, which could adversely affect our result of operations
18. 77We will continue to assess the realizability of our deferred tax assets in the future. Future adjustments in our valuation allowance may be required, which may have a material impact on our quarterly and annual results of operations
19. 78If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our business, financial condition, and results of operations could be adversely affected
20. 79Changes in accounting principles generally accepted in the United States may cause financial reporting fluctuations and could adversely affect our results of operations
21. 80Failure to comply with anti-bribery, anti-corruption and other similar laws could subject us to penalties and other adverse consequences
22. 81Figure is required to comply with laws related to anti-money laundering and counter-terrorist financing

Risks Related to the Recombination and Post-Recombination Integration

1. 82Federal and state fraudulent transfer laws and Nevada corporate law may permit a court to void the Recombination, which would adversely affect our financial condition and our results of operations
2. 83We may experience difficulties in reintegrating the operations of FMH back into our business or we may experience challenges in realizing expected benefits of the Recombination
3. 84We may be subject to notice and approval requirements that are implicated by the Recombination and with which we may not be able to comply with

Risks Related to Ownership of Our Securities

1. 85The market price of our Class A common stock may be volatile, which will directly affect the market price for the Blockchain Stock, and you could lose all or part of your investment
2. 86The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have an adverse impact on the market price of our Class A common stock
3. 87Our Blockchain Stock is transferable only among wallets that have gone through a KYC and anti-money laundering onboarding process, and there can be no assurance that our Blockchain Stock will become freely transferable in the future
4. 88Our quarterly results are likely to fluctuate and as a result may adversely affect the trading price of our Class A common stock and Blockchain Stock
5. 89If securities or industry analysts publish inaccurate or unfavorable research about us, our business, or our market, or if they adversely change their recommendations regarding our Class A common stock, the trading price or trading volume of our Class A common stock and Blockchain Stock could decline
6. 90We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock and Blockchain Stock less attractive to investors
7. 91Future sales of our common stock or Blockchain Stock, or the perception in the public markets that these sales may occur, may depress the price of our Class A common stock or Blockchain Stock
8. 92We do not intend to pay cash dividends on our common stock or Blockchain Stock for the foreseeable future
9. 93Nevada law and provisions in our second amended and restated articles of incorporation and bylaws might delay, discourage, or prevent a change of control of our Company or changes in our management, thereby depressing the market price of our Class A common stock and Blockchain Stock
10. 94A change of control of our Company could result in an assignment of our investment advisory agreements and the termination of the investment management agreement in place with FCC
11. 95You may be diluted by the future issuance of additional common stock and Blockchain Stock in connection with our equity incentive plans, acquisitions or otherwise
12. 96An active trading market for the Blockchain Stock does not exist and may not develop
13. 97The trading price of the Blockchain Stock on our ATS may differ materially from the trading price of our Class A common stock on the NASDAQ, and there can be no assurance that there will be price parity
14. 98Holders of Blockchain Stock may experience settlement delays when converting to and selling shares of Class A common stock
15. 99Regulatory actions may adversely affect the trading price and liquidity of the Blockchain Stock
16. 100Sellers of the Blockchain Stock will be required to receive YLDS as consideration, any future purchases of Blockchain Stock on our ATS must be settled in YLDS, and there can be no assurance that the anticipated benefits of holding YLDS will materialize
17. 101Distributed ledger technology is an emerging technology and has been subject to limited testing and usage